Eaton (ETN) 2/9/10 PriceWatch Alert Up To 7.26% Downside Protection

Posted: Tuesday, February 09, 2010 8:46 AM EDT
By: Market Intelligence Center Staff

Eaton (NYSE: ETN) closed yesterday at $61.98. So far the stock has hit a 52-week low of $30.02 and 52-week high of $70.15. Eaton stock has been showing support around 60.73 and resistance in the 63.83 range. Technical indicators for the stock are Bearish and S&P gives ETN a positive 4 STAR (out of 5) buy rating. ETN appears on the Investors Observer Hedged Dividend Income list. For a hedged play on this stock, look at an Apr '10 60 covered call for a net debit in the $57.48 area. That is also the break even stock price for this trade. This covered call has a 67 day duration, provides 7.26% downside protection and a 4.38% assigned return rate for a 23.88% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the ETN Jan '11 45 Call and selling the Apr '10 60 call for a $14.00 debit. The trade has a 67 day life and would provide 4.81% downside protection and a 7.14% assigned return rate for a 39.00% annualized return rate (for comparison purposes only). Eaton has a current annual dividend yield of 3.23%. [ATU-Seven Summits Research]